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Monthly Report: Australian Fund January 2021

31/01/2021

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Australian Fund January Monthly Report

In contrast with the frantic speculation seen in a number of US stocks, January was a relatively quiet month for the All Ordinaries Accumulation Index, which rose a modest 0.3%. The net asset value of the Forager Australian Shares Fund fell 3%, despite some positive trading updates from the Fund’s investments.

Family tracking app Life360 (360) announced the appointment of a familiar name to the board of directors. Randi Zuckerberg, sister of Mark and an early Facebook (NASDAQ:FB) employee and author, will lift Life360’s profile across the tech space. The company also delivered a largely expected set of financial metrics for the December quarter.

User numbers in the US grew 4% from a year ago as COVID-19 raged and teenage kids spent less time out of the house. Revenue for the quarter grew 25% from a year ago as more free users started paying for subscription plans. Losses were lower than the company expected as costs were better controlled. The business has successfully navigated the COVID-19 disruption, improved the functionality of the app, and launched more expensive new subscription plans. As vaccines help the USA to get moving again, user numbers should resume more rapid growth and revenue should grow faster.

AMA Group (AMA), owner of panel beating shops around Australia, looked to be restoring investors’ confidence when it announced lower debt levels and higher profit margin expectations for next financial year. There was even hope that further acquisitions, a key growth driver for the business, would resume.

The enthusiasm was short-lived. In late January, AMA’s CEO was dismissed for bonus and expense overpayments totalling $1m. This followed an investigation which began in September. The stock fell 14% on the news. The company was quick to reassure investors of a continued recovery. Carl Bizon, board member for the last year, will step in as CEO. It was not the news we were looking for from AMA. Half year financial results, due later this month, should put the focus back on the operations of the business.

National Tyre (NTD) continued a stellar streak of super performance. It’s a good time to be a seller of tyres as Australians set about exploring the country rather than flying overseas. Management’s preferred measure of profit is now expected to be more than $15m for the half year, triple the prior year’s result. That is up from expectations of more than $11.5m announced just two months ago.

Part of the improvement comes from a recent acquisition, with cost reduction and revenue benefits of $5.5m still to come. Net debt taken on for the acquisition has been quickly paid down to only $18m. And the company sounds confident of good times continuing into the second half of the financial year. After rising 14% on the day of the announcement, National Tyre has risen five-fold since the March nadir and has more than doubled from the Fund’s initial investment.

Lastly, software distributor Rhipe (RHP) announced that revenue had risen 15% for the half year while operating profit rose 34%. It’s a continuation of growth for a business well positioned to take advantage of the Microsoft-ication of the workplace. Rhipe’s partners are buying more Office365 products and Azure computing power for their small and medium business clients. The company now clips the ticket on over 720,000 Office365 licenses in Australia and Asia.

Costs rose only 3% despite investing to grow the services segment and opening up in Japan. And with a cash pile of $58m from a recent capital raising, a fifth of the current market capitalisation, Rhipe has the firepower to sensibly acquire similar businesses. Providing full year profit growth guidance of 27%, the company clearly believes there is plenty more to come.

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